Lagarde sees correspondent bank pullback; China signals larger deficit spending; 'conduct costs' balloon for banks; UST 10yr yield at 1.60%; oil and gold lower; NZ$1 = 71.1 US¢, TWI-5 = 74.8

Here's my summary of the key events overnight that affect New Zealand, with news of more difficulties sustaining Chinese growth.

But first, in New York the IMF boss has raised the problem for small island nations where large western banks pull back on correspondent services because of new regulation and AML risks. She says it is imposing costs and severe restrictions on communities that just can't afford them.

In China, house price rises in June slowed for a second straight month. This is adding to fears that a construction-led rebound in the economy may not be sustainable. And new reports suggest they may be getting ready for a new bout of deficit spending, taking the central government deficit spending target from -3% of GDP to -5%.

China's growing dysfunction matters for us through our interdependence. Deloittes said overnight that the impact on Australia is growing. "You can see the continuing income squeeze evident in falling profits, weak wages and a Federal Budget still deeply in the red. Hopefully the worst of that weakness in national income has now passed, although much remains dependent on China. Unhappily, much also remains dependent on Australia’s dysfunctional politics," they said.

In a new Report, a research group has calculated that the world's largest 20 banks spent almost NZ$0.5 trillion over the past 5 years to the end of 2015 on what it terms "conduct costs" - that is fines and related costs from bad or illegal banking practices. The top three banks were all American. Thirteen of them were European. And National Australia Bank (BNZ's parent) was the only local institution to appear in this dishonourable list.

One of the fears anti-TPPA activists banged on about is the ability for large multinationals to challenge countries policy changes in court, and the power of 'big tobacco' has been a catch cry for them. But it hasn't turned out that way: Phillip Morris has lost in court trying to protect its brand, and more legal losses are likely for them in Australia and New Zealand. Trade agreements seem to protect sovereign policy making quite well.

[Think we are paying a lot for petrol? Bloomberg has a useful tool to compare across 61 countries.]

Tomorrow morning we get another dairy auction. Over the past week or so we have been seeing hints of softer prices on the futures markets. But overnight that turned around somewhat with stronger price indications for WMP.

Back in New York, UST 10yr yields rose today and are now at 1.60%.

The US benchmark oil price is lower, now just over US$45/barrel and the Brent benchmark is just over US$47/barrel.

The gold price is virtually unchanged at US$1,328/oz.

The NZ dollar is also virtually unchanged at 71.1 US¢, is at 93.6 AU¢, and at 64.2 euro cents. The TWI-5 index is now at 74.8.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».